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Monday 26 June 2017


PPF vs. ELSS: Which tax saving investment is more suitable?
PPF and ELSS are two of the most popular tax saving investments. Financial advisers always recommend ELSS and PPF. You must be wondering which one is for you? Here, we have tried to list down the comparison between them to help you choose your option wisely.
What is PPF (Public Provident Fund)?
The Public Provident Fund(PPF) is a saving cum tax saving instrument. It was introduced by the National Saving Institute of the Ministry of Finance in 1968. PPF is a Long Term investment option. And it would suit all type of investors(Individuals). This option comes with tax benefits, loan options and a low maintenance cost. The amount you invest in PPF is eligible for deduction under section 80C of the Income Tax Act, 1961. The interest earned is tax free.  And the entire amount on maturity (Principal + Interest Accumulated) is also tax free.
What is ELSS (Equity Linked Saving Scheme)?
The Equity Linked Saving Scheme(ELSS) is an open-ended, diversified equity Mutual Fund Scheme. It is equity fund where more than 65% of fund is invested into equity. It is suitable for all type of investors(Individuals/HUF). The amount you invest in ELSS is also eligible for deduction under section 80C. Capital gain arising on sale of ELSS funds at the end of 3 years lock in period is Exempt from tax. With regards to dividend earned, you can opt for dividend pay-out option or dividend reinvestment option.

Comparison and Conclusion:

Minimum Investment Amount
Rs. 500
Investment Limit
Upto Rs.1,50,000
No limit.
Lock in Period
15 years
3 years
Return on your Investment
8.8% (Compounded annually)
Not assured. It completely dependent on equity market’s performance.
Highest Safety (Guaranteed by Government)
High Risk
Near to retirement
Retirement is several years far
Premature Withdrawal
Only once a year, from 7th year subject to certain conditions
Cannot withdraw before maturity date i.e; 3 years.
Online transaction
Some banks have started giving online facility. However, first-time investor has to visit the bank and do the initial registration by submitting documents.
ELSS can be done Online. An investor can invest or sell ELSS fund any time

ELSS actively invests in the equity markets, with a potential to earn higher returns than traditional savings options like PPF. There is better liquidity with ELSS with lowest lock-in period of 3 years and moreover, ELSS will effectively be a tax-free investment (EEE model). Investing in a fixed income product like PPF will restrict your returns, with inflation hovering around 6%, your real rate of return is only 2-3% with PPF. Such low returns will prevent any major gains accruing over a long period of time. You need to weigh the pros and cons and aim for more with ELSS, instead of getting stuck with fixed income-oriented investments like PPF. To top it all, with a monthly SIP, you can invest on monthly basis, instead of bunching everything up at the year end. Further risk of loss in equity tends to reduce over the long term and tax-saving investments under Section 80C are usually for the long term.

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